Tag Archive: growth

In the 2013 Budget speech, Finance Minister, Pravin Gordhan, emphasised that one of Government’s most pressing development challenges is to expand work opportunities for young people: “There has been extensive debate on how this should be done and the answer is that a wide range of measures are needed, including further education, training, public employment opportunities and support for job creation in the private sector.”

Learnerships help young people to obtain a formal qualification, while gaining relevant workplace experience. While there are many benefits to the prospective learners, there are also advantages to the employer implementing the learnership. Employers have the peace of mind that their employees are not away from the office for extended periods of time and while they are away, they are improving their relevant work based skills to be more productive and efficient at what they are employed to do.

In 2002, the Government introduced a Learnership Allowance Incentive, for employers to:

Encourage job creation by reducing the cost of hiring and training employees through learnerships

Promote skills development

Encourage human capacity development

However, there is a very specific legislation that guides the process and it poses certain challenges. Tax Talk spoke to Rob Cooper, tax expert and Director of Legislation Updates and Proposed legislation at Sage VIP,part of the Sage Group plc, about some of the recent changes made to the Learnership Allowance Incentive.

Cooper says: “Toencourage employers to participate in learnerships, an allowance in the form of a deduction from the company’s taxable income has been available for many years. To qualify for the learnership allowance, employers must register the learnership with SETA. There is a R30 000 allowance at the start of the learnership, and a further R30 000 upon the successful completion. The value of the actual incentive has always been influenced by the when the learner is registered and the learner’s failure to complete. However, with new legislation introduced in January, the scenario will change.”

Cooper explains: “In the past, the allowance (deduction) was only allowed during the year in which the learnership agreement was officially registered with SETA. For a variety of reasons, registration often takes a couple of months and this resulted in reduced value.”

“In future, employers will no longer have to register learnerships from the moment of the inception. A learnership will be deemed to have been registered for the duration of the agreement that falls within the employer’s year of assessment. However, it is necessary that the learnership is registered within 12 months after the year of assessment.”

“The second issue relates to failure to complete. In the past, the allowance was not granted if the learner previously failed to complete a prior registered learnership of similar nature to the new learnership. Typically, the employer was not aware of prior learnerships (i.e. the information was not easily accessible or the quality of the information was not reliable, as it is dependent on feedback from other employers). Attempts to obtain this information also delayed the registration process.”

“In future, employers will no longer have to find out details of the individuals’ learnerships entered into with other employers. Learnership allowances will only be refused if the learner failed the same type of learnership with the same employer (or associated institution).”

”Implementing a learnership programme within your company will definitely contribute to job creation, especially for young people. However, it is important to keep track of all the legislative changes. Make sure that your company is operating within the parameters of the basic conditions of employment and its legal requirements. It is crucial to being a responsible citizen,” concludes Cooper.

For more information, employers are invited to attend the Sage VIP, Payroll and Tax Seminar. You can book your seat at: www.vippayroll.co.za.

Rob Cooper is a tax expert and Director of Legislation Updates and Proposed legislation at Sage VIP, part of the Sage Group plc.

Rob Cooper

“Changes proposed to South Africa’s Basic Conditions of Employment Act (BCEA), Labour Relations Act (LRA) and Employment Equity Amendment Bill (EEAB) will have a significant impact on how employers conduct their business in 2013,” says Cooper.

“In the draft Employment Equity Amendment Bill (EEAB), specific attention should be paid to the concept of equal pay for work of equal value, which can result in a new form of unfair discrimination.”

Cooper explains: “In cases where employment conditions, including remuneration, are applied differently to employees who do the same or similar work, then the employer must be able to show that the differences are based on fair criteria such as experience, skills, responsibility and qualifications. If the employer cannot do this, the differentiation would constitute unfair discrimination.”

“In practice it would mean that if a company employed factory workers on a permanent basis and at times of high demand took on additional workers from a labour broker and they worked side by side doing the same job, then both permanent and labour broker-supplied workers must be paid at the same rate,” says Cooper.

“Because the employer must pay the labour broker his fee on top of the wages for the workers, the result will be that brokered labour will cost more than permanent labour. This is logical and the premium that the employer must pay for flexibility.”

“Importantly, the intention is to align the Employment Equity Act with other general labour laws that need to be applied in cases where an individual supplied to a client by a labour broker is seen as an employee of that client. One can only assume at this early stage that these employees, supplied by the labour broker, will have to be included in the client’s equity plan as well as in the labour broker’s equity plan.”

“The draft Employment Equity Act further changes the way in which companies implement affirmative action. According to Cooper, the groups of people who benefit from the affirmative action provisions will be limited to those who were South African citizens before democracy (April 1994) or to those who were prevented by the policies of apartheid from becoming citizens before 1994, and their descendants. This means that the employment of foreign nationals or those who became citizens after the democratic era (April 1994), will not assist employers to meet their affirmative action targets.”

Employment Services Bill

According to Cooper, the Employment Services Bill is another very important piece of legislation for employers to be aware of as it moves towards finalisation.

“The overall intention of this brand new piece of legislation is to empower the Department of Labour to provide a comprehensive range of employment services (free of charge) to members of the public in an attempt to achieve the Government’s objectives of: more jobs, decent work and sustainable livelihoods. Any initiative that reduces unemployment is to be welcomed,” says Cooper.

The Government is aiming at making employment services open and accessible to all. This includes the following:

Registering work vacancies and seekers, matching resulting opportunities, and facilitating the placement of seekers with employers or other work opportunities.

Provision of advisory services for training, social security benefits, dealing with vulnerability, vocational and career counselling, assessment of work seekers to determine suitability, and improving work-related life skills.

UIF (Unemployment Insurance Fund) legislation

“Changes to the UIF legislation have been pending for quite some time and will hopefully move through Parliament towards the end of this year. Broadly, the proposed changes envisage increasing the value of the UIF benefit, as well as extending the grace period during which benefits can be claimed, from 6 to 18 months,” says Cooper.

He says there is also an intention to remove certain exclusionsof which there are no details but hopes that this will include the exclusion of commission from the remuneration on which the contribution is calculated, which results in commission being excluded from the value of the contribution and the benefit. Unemployed people, who were earning a low basic salary plus commission, are negatively affected by a benefit that is in line with only their basic salary.

Cooper is encouraging employers to attend Sage VIP’s Payroll and Tax Seminar in March and April 2013. “The seminar is regarded by many as a definitive guide to the changes in payroll and tax legislation and we endeavour to present it in a practical and interactive manner that does not focus on the legal aspects alone. The presentation will also aim at communicating future trends that will impact payroll and HR,” said Cooper.

Whilst last year’s budget was all about infrastructure expansion investment, this year the emphasis is in keeping the budget deficit in check.

Mr Gordhan announced in his 2013 budget speech that tax collections would be R16.9 billion less than the estimate made in the 2012 budget. This was largely as a result of weaker economic growth, labour unrest and lower commodity prices. Economic growth for 2012 is expected to be sluggish at 2.7% with mining strikes and stoppages costing the economy approximately R15.3 billion.

As a consequence, the budget deficit increased to 5.2% of GDP. In other words, government spending exceeded tax revenue collected by R185 billion. In business terms, government made an operating loss in 2012.

In order to reduce the deficit (or rate of cash burn) Gordhan said that he would not increase taxes or impose drastic austerity measures, but would instead reduce the rate at which public spend was escalating. He said he would do this by utilising government’s contingency reserve (R23.5 billion); reprioritising expenditure to strategically important initiatives (R52 billion); and reducing financial mismanagement and corrupt expenditure (6% of GDP). If successful, the growth in government spending would be reduced to 2.3% in real terms (7.8% including the effects of inflation) and the budget deficit brought back to 3.1% over 3 years. Additional borrowings of R497 billion would be required to fund the deficit, increasing government debt to R1,7 trillion or 40% of GDP. Gordhan said that he was comfortable with this level of debt and SA’s ability to meet its debt service commitments.

If government were a business the budget would read as follows:

Business SA has made a loss equivalent to 5.2% of its turnover.

It does not want to increase its prices as existing customers may stop buying and new customer acquisitions decline.

To return to profitability (or reduce its loss) Business SA therefore has to reduce its cost base or at least slow its cost growth.

It will do this by a combination of resource reallocation to its priority initiatives and reduction of inefficiencies and wasteful expenditure.

Until such time as it is able to return to profitability Business SA will utilise its cash resources and credit lines to fund its losses.

It is a balancing act. Do you cut deep; stop the cash burn but risk sustainability and preparedness for the next cyclical upturn? Or do you rather focus on efficiency gains and investment priorities, live with losses and more debt, but enhance sustainability and competitive edge?

Government has chosen the later, both for socio economic and structural reasons, but also because it has the capacity to borrow in order to sustain deficits. I believe they have got the balance right in this budget. It is now up to government to show the political will and commitment necessary to implement it.

Finance Minister, Pravin Gordhan’s Budget Speech on Wednesday, 27 February 2013, introduced several changes that will have a direct impact on payroll and HR across South Africa. Leading payroll and HR solutions provider, Sage VIP, says that administrators will have to ensure that their payroll systems are updated as from 1 March 2013 to reflect the stipulated changes. “Not implementing these changes, in the first period of the new tax year, will result in incorrect PAYE calculations,” says Karen Schmikl, Legislation Manager at Sage VIP, part of the Sage Group plc.

The tax tables for individuals and special trusts for the year ending 28 February 2014 are:

Taxable Income (R)

Rate of Tax (R)

0 – 165 600

18% of taxable income

165 601 – 258 750

29 808 + 25% of taxable income above 165 600

258 751 – 358 110

53 096 + 30% of taxable income above 258 750

358 111 – 500 940

82 904 + 35% of taxable income above 358 110

500 941 – 638 600

132 894 + 38% of taxable income above 500 940

638 601 and above

185 205 + 40% of taxable income above 638 600

Schmikl says the tax rebate amounts have also had changes in line with inflation: “The primary tax rebate amount has been adjusted to R12 080, while a secondary rebate for persons of 65 years and older is set at R6 750. A tertiary rebate for persons of 75 years and older is R2 250.”

The tax thresholds have also been adjusted. Below the age of 65, the tax threshold has been set at R67 111; ages 65 to 74 now have a tax threshold of R104 611; while ages 75 and over have a tax threshold of R117 111.

“An employee is entitled to receive a subsistence allowance when the employee is obliged to spend at least one night away from his or her usual place of residence. The value of the deemed allowance or advance where the accommodation is in South Africa has been amended to R319 per day for meals and incidental costs and R98 per day for incidental costs only. The schedule of rates for accommodation outside the country has been published on the SARS website,” says Schmikl.

The medical tax credits have also been increased to R242 for the main member and first dependent and R162 for every additional dependent thereafter.

Travel allowance costs have also been adjusted. “The SARS deemed rate per kilometre increased from R3.16 to R3.24. The fixed cost, fuel and maintenance cost values have been amended and it is advisable to recalculate the value of all employees’ travel allowances from 1 March 2013,” says Schmikl.

Value of the vehicle (incl. VAT)

Fixed cost

Fuel cost

Maintenance cost

(R)

(R p.a.)

(c/km)

(c/km)

0 – 60 000

19 310

81.4

26.2

60 001 – 120 000

38 333

86.1

29.5

120 001 – 180 000

52 033

90.8

32.8

180 001 – 240 000

65 667

98.7

39.4

240 001 – 300 000

78 192

113.6

46.3

300 001 – 360 000

90 668

130.3

54.4

360 001 – 420 000

104 374

134.7

67.7

420 001 – 480 000

118 078

147.7

70.5

exceeding 480 000

118 078

147.7

70.5

The Residential Accommodation Fringe Benefit abatement value has increased from R63 556 to R67 111. Schmikl says many companies provide their employees with housing assistance or home loans. This imposes a fringe benefit calculation, which is burdensome if the company transfers the house to the low-income employee. However, Treasury intends to review the fringe benefit tax calculation to lower the burden, which is positive news.

“There were speculations that an additional tax bracket would have been added for higher income earners. However, with the small number of individuals in the top income bracket, this would not have made a significant contribution to the revenue required,” says Schmikl.

A positive outcome from the budget speech is the fact that Parliament will be considering tax incentives for employers, as part of a scheme to share the costs of employing young work seekers. However, it is still unclear how and when this will be implemented.

According to Schmikl, the Retirement Reform might be implemented in March 2014. “This will result in fringe benefit calculations when an employer contributes towards the employees’ retirement funds which include pension and retirement annuity funds. A 27.5% deduction is proposed on contributions with a maximum annual deduction of R350 000,” says Schmikl.

She continues: “In going forward, employers should also take note of the impact of the Taxation Laws Amendment Act, 2012, on payroll systems. This includes a change in the way employers deal with rental cars as company cars and the taxation of variable remuneration. It is advisable for employers to ensure that these changes are being applied to their payroll system, to keep the company compliant and up to date with legislation.

For more information on the Budget Speech or to reserve a seat for the Annual Payroll Tax Seminar, please visit www.vippayroll.co.za

Sidebar 1

Rental Cars as Company Cars

Under normal circumstances, vehicles provided as company cars to employees are owned (purchased or leased) by the employer. Currently, if the company rents a vehicle on a medium term basis and grants the use of it to an employee, the market value is used as the determined car value. Going forward, SARS wants to provide for scenarios where the vehicle is rented by the employer and is subject to an operating lease.

As from 1 March 2013 the actual cost incurred under that operating lease, plus fuel cost is used as the fringe benefit value, as long as the rental arrangement can be viewed as an operating lease. There are specific conditions to comply with, for it to be seen as an operating lease:

The employer must rent the vehicle from a company that is in the business of renting cars

The vehicle may be rented by the public for a period of less than a month

The cost of maintaining the vehicle must be done by the rental company

Risk of the loss or damage must not be assumed by the employer

The taxation of company cars, which are not subject to an “operating lease”, stays unchanged.

Sidebar 2

Variable Remuneration

Remuneration should be taxed when it is paid to the employee or when it is accrued (whichever happens first). This principle sometimes causes problems as a payment can be accrued in a tax year but only be quantified and paid in the next tax year. From 1 March 2013, variable remuneration should be taxed in the month that it is paid to the employee and not when it accrues. This is quite a significant change as this will relief the administrative burden of managing these payments.

Variable remuneration is defined as:

Overtime

Bonuses

Commission

An allowance or advance paid in respect of transport expenses such as a travel allowance

Personal income tax brackets and rebates have been slightly adjusted to reduce the effect of inflation on tax payable. The amount an individual can earn before being required to pay income tax has been increased for the 2013/14 tax year to R67 111 for individuals below the age of 65, R104 611 for individuals between the ages of 65 and 74 and R117 111 for individuals over 75 years.

The annual tax rebates for individuals have been increased. The primary annual tax rebate for individuals under the age of 65 to R12 080, for individuals aged between 65 and 75 to R6 750 and those aged 75 and older to R2 250.

The lowest tax bracket remains at a tax rate of 18% (annual taxable income up to R165 600) and the highest tax bracket remains taxable at 40% (annual taxable income of more than R638 600).

Effective from 1 March 2012 the medical aid capping system was replaced with a tax credit, bringing in equality for all taxpayers under the age of 65 and improved benefits for lower earners, a move in line with international best practice. The medical aid tax credit system is also used in the new tax year, commencing 01 March 2013.

Monthly tax credits for medical scheme contributions (reduction of tax payable) will be increased from R230 to R242 for each of the first two beneficiaries on a medical scheme and from R154 to R162 for each additional beneficiary on the medical scheme for the 2013/14 tax year.

One of the biggest changes were for individuals whose taxable income is from one employer and is below R250 000 a year. They are not required to submit income tax returns, however they will still be liable to pay income tax. Previously, this annual earnings limit was R120 000. For example, if an individual earns a gross salary of R20 000 per month (no entitlement to commissions or bonuses), they no longer have to file their tax returns.

This means that there will be more pressure on employers to ensure that tax deductions and calculations on payslips are accurate.

Another big proposed change in the Budget Speech effective from March 2014 is that an employer’s contribution to retirement funds on behalf of an employee will be treated as a taxable fringe benefit in the hands of the employee. Individuals will from that date be allowed to deduct up to 27.5 per cent of the higher of taxable income or employment income for contributions to pension, provident and retirement annuity funds with a maximum annual deduction of R350 000.

Contributions above the cap are carried forward to future tax years. Therefore, all company contributions towards pension, provident and retirement annuity funds will become a fringe benefit and it will increase the total tax deduction. If the company contribution is low, it will only have a small impact on the individual. However, if the company contribution towards pension, provident and retirement annuity funds is substantial, it will have a bigger effect on the individual’s net pay and because the taxable earnings are greater, the individual will have to pay more tax.

Environmental taxes go up and will affect a large portion of the RSA population.

From 3 April 2013, the general fuel levy will rise by 15 cents per litre to R2.13 while the Road Accident Fund levy will increase by 8 cents per litre to 96 cents per litre of petrol.
Plastic bag levy – The levy on plastic shopping bags has encouraged consumers to reduce their use. The levy will rise from 4 cents to 6 cents per bag from 1 April 2013.

Incandescent light bulb levy – To promote energy efficiency a levy on incandescent light bulbs was introduced in 2009. The levy is to be increased from R3 to R4 per bulb from 1 April 2013.

Motor vehicle carbon dioxide emissions tax – The tax on motor vehicle carbon dioxide emissions, which is intended to encourage consumers to buy vehicles with lower carbon emissions, will increase from 1 April 2013. For passenger cars, the tax will rise from R75 to R90 for every gram of emissions per kilometre above 120 gCO2/km. In the case of double cabs it will increase from R100 to R125 for every gram of emissions per kilometre above 175 gCO2/km.

Following overseas trends, a policy paper on carbon emissions tax is to be published in 2013 with the view of introducing a carbon tax from 2015.

Subsistence allowances paid to employees who travel for business within South Africa, will be tax-free provided the amount paid for meals and incidental costs does not exceed R319 per day. An amount not exceeding R98 per day for incidental costs only will also be exempt.

To assist SME businesses with the changes outlined in the new Budget, Sage Pastel Payroll & HR is incorporating all of the Budget changes to tax bracket values, medical aid benefits, and tax relief rebates.

“Automated Payroll and HR software ensures that payrolls are accurate and legally compliant the moment the new Budget stipulations take effect in the new tax year. Currently there are 75 tax certificate totals that need to be considered when producing payslips, therefore manually doing the calculations is a daunting task and errors can creep in easily,” says Meyer.

SARS has recently changed the reference number for third party agent appointments from ITA88 to AA88. This change is already available in the latest e@syFile Version 6.2.2. SARS has also updated the guidelines for agent appointments. Go towww.sars.gov.za to view the new Agent Appointment Process and Employer Guide.

Example
John Doe who is 37 years old is employed on a full-time basis. During the 2012/2013 tax year of assessment, John earned a salary of R18,000 per month and a travel allowance of R3,000 per month. During December 2012 John also received a bonus of R15,000 and a taxable bursary of R3,000. John contributes monthly to a Pension fund to the value of R500, a medical aid of R2,300 and he has a deduction towards an income replacement policy of R100 each month. John is the main member on his medical aid, and has two other beneficiaries loaded on the medical aid. Below, please find the tax comparison for John for 2012/2013 vs. 2013/2014 tax year.

Software, Solutions & Insights

The Sage Group provides business software, services and support to small and medium sized businesses. Whilst the heritage is in the SME market, the company also has the experience and expertise to deal with the requirements of specific industries and larger organisations. Core solutions cover accounting, ERP, Payroll and HR, Business Intelligence, customer relationship management and retail software solutions to small, medium and larger sized companies.